Building maintenance. It’s something that property owners and managers don’t like to think about. It’s never fun to talk about ongoing expenses when it comes to investment properties. However, if you are serious about building cash flow in your properties, it is one of the most important, yet overlooked, aspects of real estate investment. It’s true that nothing lasts forever, and that definitely applies to real estate, but budgeting now for maintenance can help protect your investment for years to come.
What is Property Maintenance and Why Should I Care?
Property maintenance is the tasks and strategy you create for keeping your property in good condition. There are a variety of types of tasks this may include, but they are all critical for avoiding emergency issues that can occur if upkeep is ignored. There are several reasons that property maintenance should be part of your real estate strategy:
- Satisfied Tenants– Poor maintenance of buildings generates dissatisfied tenants.
- Increased Property Value– A building that is maintained property will hold its value or even increase the value. Lack of maintenance will decrease value and the prices you can charge for rent.
- Reduce Costs– Routine maintenance can help reduce expenditures by minimizing risk, satisfying tenants, decreasing manual effort, and extending the life of the building and equipment.
Benefits of Budgeting Ahead for Annual Maintenance Costs
As with most types of budgeting, there really isn’t a right or wrong way to budget as long as you are making one. As with any type of budget though, it helps to know what types of things you need to be budgeting for.
- Routine Maintenance – Routine maintenance includes things such as landscaping, interior and exterior cleaning, garbage and recycling area cleaning, and other monthly maintenance fees. This is usually the easiest to budget and often involves fees that are fairly fixed.
- Seasonal Maintenance – This type of maintenance will vary based on the type of property you own and the location. Seasonal maintenance may include tree pruning, gutter cleaning, and snow removal. Fresh Foam’s Ice-X product is a mess-free, environmentally friendly option for your winter maintenance program.
- Appliance Maintenance –Anytime you provide appliances for your tenants to use, you don’t have control over how well they take care of them. Investing routine maintenance into these major appliances can extend the life of these big-ticket items.
- Painting and Flooring Maintenance –These are two areas that property managers find themselves doing more maintenance than the average homeowner simply because they are high traffic areas. If a tenant leaves the property and scuffs up the walls, a new coat of paint will be needed to freshen it up for the next renter. Same with flooring. It may need to be replaced or at least get a professional cleaning when a tenant leaves to prepare for the next one.
- Pest Control –In a complex that has multiple tenants, preventative treatment for pests can go a long way in preventing an infestation.
- Waste Management –All areas of the property must be kept safe, clean, and odor-free. Routine cleaning and maintenance of trash chutes, compactors, dumpsters, and other trash handling areas is vital for the cleanliness of your property and the health of your tenants. Fresh Foam offers products that allow you to clean your own facilities, or if you live in one of our service areas, we’ll even come to your location and perform routine cleaning for you!
How to Budget for Routine Maintenance
Now that you know what you need to budget for, you need to determine how much you should budget. Luckily, there are some general rules of thumb that most property owners and managers use for budgeting these costs:
- 50% Rule – Plan on having your total operating costs (repairs, taxes, maintenance, insurance) equal half of your rental property income.
- 1% Rule –Your maintenance budget alone should cost at least one percent of the value of your property each year. For example, if your property is valued at $190,000, you should plan on spending $1,900 per year maintaining it.
- Square Footage –Plan on spending a minimum of $1 per square foot of your property for yearly maintenance fees.
- 5X Rule –The annual maintenance costs for a typical property will average 1.5 times the monthly rental rate. So, if you rent your property for $1,200 per month, you should plan on spending $1,800 a year in maintenance each year.
It is important to understand that these rules are all estimations and that no two properties are the same. What you really need to know is that maintenance costs are real, inevitable, and should take up at least part of your annual budget. So, develop a budget (now is a perfect time to start planning as the New Year is quickly approaching), stick to it, and don’t use those funds you set aside for anything but keeping your property in tip top shape.